Strategic Management and

Business Policy 15e, Global Edition

Chapter 1
Basic Concepts of
Strategic
Management

15

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Learning Objectives (1 of 2)

1.1 Discuss the benefits of strategic management

1.2 Explain how globalization, innovation, and
environmental sustainability influence strategic
management
1.3 Discuss the differences between the theories of
organizations
1.4 Discuss the activities where learning
organizations excel

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1-2
Learning Objectives (2 of 2)

1.5 Describe the basic model of strategic

management and its components
1.6 Identify some common triggering events that act
as stimuli for strategic change
1.7 Explain strategic decision-making modes
1.8 Use the strategic audit as a method of analyzing
corporate functions and activities

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The Study of Strategic Management
(1 of 2)
• Strategic Management
– a set of managerial decisions and actions that
determines the long-run performance of a
corporation

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When Strategic Management is
done?
1) Starting new business
2) Buying already established business
3) Fulfilled vision/ New vision
4) Need for finance

 A vision states what the organization aspires to become in the

future

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5
The Study of Strategic Management
(2 of 2)
Strategic management includes:
1) Internal and external environmental scanning
2) Strategy formulation
3) Strategy implementation
4) Evaluation and control

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Figure 1-2: Strategic Management Model

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1-7
Benefits of Strategic Management
(1 of 2)
1.The attainment of an appropriate match, or “fit,”
between an organization’s environment and its
strategy, structure, and processes has positive
effects on the organization’s performance.
2. Strategic planning becomes increasingly
important as the environment becomes more
unstable.

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Benefits of Strategic Management
(2 of 2)

3. Clearer sense of strategic vision for the firm

4. Improved understanding of a rapidly changing

environment

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Basic Model of Strategic
Management (1 of 9)
Strategic management consists of four
basic elements:
1. Environmental scanning
2. Strategy formulation
3. Strategy implementation
4. Evaluation and control

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Figure 1-1: Basic Elements of the
Strategic Management Process

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Figure 1-2: Strategic Management Model

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Basic Model of Strategic
Management (2 of 9)
• Environmental Scanning
– the monitoring, evaluating and disseminating of
information from the external and internal
environments to key people within the
organization
– SWOT analysis: simple way to conduct
environmental scanning

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Figure 1-3: Environmental Variables

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Basic Model of Strategic
Management (3 of 9)
• Strategy formulation
– process of investigation, analysis, and
decision-making that provides the company
with the criteria for attaining a competitive
advantage
– includes defining the competitive advantages
of the business, crafting(make) the corporate
mission, specifying achievable objectives, and
setting policy guidelines

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Basic Model of Strategic
Management (4 of 9)
• Mission(Now)
– purpose or reason for the organization’s existence
• Vision(future)
– describes what the organization would like to become
 What do you want to achieve in 10 years?
 Normally “vision statements” have a specific period.

• Objectives
– results of planned activity

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 Strategy Formulation
The Mission Statement
• Mission Statement
– Outlines the purpose of existence of the firm.

– It tells what the company is providing to society, either

a service like banking services or a product like
automobiles.
– It may also include the firm’s philosophy about how it
does business and treats its employees.
– It puts into words not only what the company is now.
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1-17
Mission statements focus on:
• What business are we in?
• Who is to be served?
• What benefits are to be delivered?
• How are consumers to be satisfied?

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The Mission Statement

• Mission Statement – example

To become an admired company producing high quality
products using state of the art technology and distributing
products at competitive prices and gaining customer
satisfaction and rewarding shareholders.
• A mission statement should include:
– Employees
– Customers
– Shareholders
– products

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 Examples of mission statements
Pepsi Cola's mission is to be
The Coca Cola Company the world's premier consumer-
Mission. Our mission is: To products company, focusing on
refresh the world in mind, convenient foods and
body and spirit. To inspire beverage. It strives for
moments of optimism and honesty, fairness and integrity.
happiness through our The company seeks to
brands and actions. produce financial rewards for
investors and provide
opportunities for growth and
enrichment to its employees,
its business partners and the
communities in which it
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operates.
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 Basic Model of Strategic Management
Strategy Formulation
• Objectives
– the end results of planned activity
– The achievement of corporate objectives should result in
the fulfillment of a corporation’s mission.
– The (objectives) state what is to be accomplished by
when and should be quantified if possible.
The term “goal” is used interchangeably with the term
“objectives”.
Goal is considered an open ended statement of what is to be
accomplished with no quantification; e.g. to increase profitability,
without stating how much profit the firm wants to make next year.
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 Basic Model of Strategic Management
Strategy Formulation
• Objectives
On the other hand, an objective would be “to increase profits
by 10% next year”.
Examples of goals and objectives:
• Profitability (net profit)

• Efficiency (low costs)

• Growth (increase in total assets, sales, etc.)

• Reputation (being considered a “top” firm)

• Market Leader (market share)

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 Basic Model of Strategic Management
Strategy Formulation
• Objectives have to be SMART
S Specific: clearly & precisely stated or expressed
M Measurable: so that there is confirmation of
whether or not they are achieved
A Agreed/Achievable: with those responsible for
achieving them
R Realistic: so that they can be achieved
T Timed: with a deadline for achievement
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Basic Model of Strategic
Management (5 of 9)
• Strategy
– forms a comprehensive approach that states
how the corporation will achieve its mission
and objectives
– maximizes competitive advantage and
minimizes competitive disadvantage
– corporate, business, functional

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Figure 1-4: Hierarchy of Strategy

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Hierarchy of Strategy

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 Levels of Strategy
• Strategists exist at a number of levels in an organization. Taking Dell as
an example, it is possible to distinguish at least three levels of strategy.
• The first, corporate-level strategy, is concerned with the overall scope
of an organization and how value will be added to the different parts
(business units) of the organization.
• The second level, is business-level strategy, which is about how to
compete successfully in particular markets.
• The third level of strategy is at the operating end of an organization.
This is also called functional strategies – operational strategies –
which are concerned with how the component parts of an organization
(departments) deliver effectively the corporate- and business-level
strategies in terms of resources, processes and people.

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Basic Model of Strategic
Management (6 of 9)
• Policy
– a broad guideline for decision-making that links
formulation of a strategy with its
implementation

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Basic Model of Strategic
Management (7 of 9)
• Strategy implementation
– process by which strategies and policies are
put into action through the development of
programs, budgets, and procedures

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Basic Model of Strategic
Management (8 of 9)
• Evaluation and control
– a process in which corporate activities and
performance results are monitored so that
actual performance can be compared with
desired performance

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Basic Model of Strategic
Management (9 of 9)
• Performance
– result of activities
– includes actual outcomes of the strategic
management process
• Feedback/learning process
– revise or correct decisions based on
performance

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Initiation of Strategy:
Triggering Events
• Triggering event (stimulus for a change in strategy)

 new CEO
 external intervention
 threat of change of ownership
 performance gap

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 Strategic Decisions
• Strategic decisions are about:
– The long-term direction of an organization
– Gaining advantage over competitors
– Addressing changes in the business environment
– Building on resources and competences (capability)

Therefore strategic decisions are likely to be:

– Complex in nature
– Made in situations of uncertainty
– Affect operational decisions

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Strategic Decision-making

• Strategic decisions
– deal with the long-term future of an entire
organization and have three characteristics:
1. rare
2. consequential
3. directive

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Three Characteristics of
Strategic Decisions
• Rare
– Strategic decisions are unusual and typically have no
precedent to follow.
• Consequential
– Strategic decisions commit substantial resources and
demand a great deal of commitment from people at all
levels.
• Directive
– Strategic decisions set precedents for lesser decisions
and future actions throughout an organization.

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Strategic Decision-making Process
1. Evaluate current performance results.
2. Review corporate governance.
3. Scan and assess the external environment.
4. Scan and assess the internal corporate environment.
5. Analyze strategic factors.
6. Generate, evaluate, and select the best alternative
strategies.
7. Implement selected strategies.
8. Evaluate implemented strategies.

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Figure 1-5: Strategic Decision-Making
Process (1 of 2)

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Figure 1-5:
Strategic Decision-making Process (2 of 2)

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Who do Strategic Management?
Corporate Governance
 Refers to the relationship among:
 The board of directors
 Top management
Shareholders
 Shareholders
 in determining the direction and performance of the
corporation

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39
Who is on the Board of Directors?

Chairman of the board

Inside board members
 Chief Executive officer (CEO)
 Chief Operating officer (COO)
 Chief Financial officer (CFO)
 Chief Information officer (CIO)
Outside board members

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Roles and Responsibilities of the BoD
1. Elected representatives of the company’s stockholders
2. Legally obligated to represent and protect stockholder’s /
Caring for shareholders interest
3. Setting corporate strategy
4. Hiring & firing CEO and Top Management
5. Controlling, monitoring, and supervising Top Management
6. Reviewing and approving use of resources

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41
Roles and responsibilities of the Top Management
1. Provide effective leadership and strategic vision

2. Manage the strategic planning process

3. Responsible for decisions and action of every employee
 Implement— put the strategies into action and monitor
performance
 Evaluate—do the actual evaluations and take
necessary actions

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Thank you

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